Woodside Petroleum Ltd.

WPL Details

Update on the Scarborough Project: Woodside Petroleum Ltd. (ASX: WPL) is engaged in the exploration, development, production, and marketing of hydrocarbon. The company has recently given an update on the Scarborough project. It has updated the cost estimate to US$12 billion, which comprises US$5.7 billion for the offshore and US$6.3 billion for the onshore component. The cost is ~5% higher than the previous estimate and it expects an IRR of the Scarborough and Pluto Train 2 development to be greater than 12%.

Q2FY21 Performance Update:

• During the period, the company delivered sales revenue of ~US$1,285 million, an increase of ~15% from Q1FY21.
• The sales volume was up by ~9% to 28.1 MMboe from the prior quarter.
• The company reported a decrease in production by ~4% to 22.7 MMboe, when compared to Q1FY21.

Trend in Cash and Short-Term Investments (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risk of foreign currency fluctuation that has the potential to impact its profitability.

Outlook: The company has reiterated its half-year 2021 guidance for ‘Other expenses’ at US$135- US$165 million. It anticipates trading costs at US$330-US$390 million during the same period. It has also launched the sell-down process for up to ~49% of its equity in Pluto Train 2 and is looking for value accretive opportunities in order to reduce its equity in the Scarborough resource.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of WPL is trading below its average 52-weeks’ levels of $16.800-$27.600. The stock of WPL gave a positive return of ~7.74% in the past one year and a negative return of ~13.05% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium to its peer average EV/Sales (NTM trading multiple), considering the impressive sales & revenue performance and higher current ratio. For this purpose, we have taken peers such as Santos Ltd (ASX: STO), Oil Search Ltd (ASX: OSH), Senex Energy Ltd (ASX: SXY), to name a few. Considering the expected upside in valuation and current trading levels, improvement in sales revenue & volume, higher EBITDA margin compared to the industry median, we recommend a ‘Buy’ rating on the stock at the current market price of $21.91, up by ~0.458% as on 11 August 2021.

WPL Daily Technical Chart, Data Source: REFINITIV

Beach Energy Limited

BPT Details

Q4FY21 Performance Update: Beach Energy Limited (ASX: BPT) is engaged in the exploration and production of oil and gas. The company has updated about its Q4FY21 performance on 21 July 2021 and reported positive sales movement during the period.

• Sales revenue grew by ~7% to ~$421 million, when compared to the prior quarter on the back of increase in realisation of oil prices by ~10%.
• It reported net debt of ~$48 million and liquidity of ~$402 million during the period end.
• The full year production stood at 25.6 MMboe.

Trend in Cash Balance (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business exposes it to prudent regulatory purview, which might have an impact on the performance of the company.

Outlook: The company has announced that it will release its FY21 results on 16 August 2021. Commissioning is underway for the Kupe compressor project, and it is on track for completion during H1FY22. It will also commence construction activities at Waitsia Stage 2 (Waitsia LNG) in H1FY22. It has given revised FY21 production guidance of 25.2-25.7 MMboe, capex to be between $700-740 million, and underlying EBITDA in the range of $850-900 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The company has successfully drilled the 4 development wells of Geographe during the Q4FY21 period. As per ASX, the stock of BPT is trading below its average 52-weeks’ levels of $1.150-$2.035. The stock of BPT gave a negative return of ~15.15% in the past one year and a negative return of ~33.65% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer median EV/Sales (NTM trading multiple), considering the decrease in ROE and margin performance. For this purpose, we have taken peers such as Santos Ltd (ASX: STO), Woodside Petroleum Ltd (ASX: WPL), Senex Energy Ltd (ASX: SXY), to name a few. Considering the expected upside in valuation and current trading levels, improvement in sales revenue, strong balance sheet & decent liquidity position and improvement in liquidity, we recommend a ‘Buy’ rating on the stock at the current market price of $1.188, as on 11 August 2021, 10:22 AM (GMT+10), Sydney, Eastern Australia.

BPT Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.